SUPPLEMENTAL DISCLOSURE OF OIL AND NATURAL GAS OPERATIONS (Unaudited)

12 Months Ended

Dec. 31, 2016

Notes to Financial Statements

SUPPLEMENTAL DISCLOSURE OF OIL AND NATURAL GAS OPERATIONS (Unaudited)

Note 16 - Supplemental Information about Oil & Natural Gas Producing Activities (Unaudited)

The Company’s oil and natural gas reserves are attributable solely to properties within the United States.

Capitalized Costs 

	December 31,
	2016			2015
Oil and natural gas properties:	(in thousands)
Proved properties	$	3,751		$	1,734
Unproved properties		1,170			2,445
Facilities		1,443			—
Total oil and natural gas properties		6,364			4,179
Less oil property impairment		(141	)
Less accumulated depreciation, depletion and amortization		(14	)		(6	)
Net oil and natural gas properties capitalized	$	6,209		$	4,173

Costs Incurred for Oil and Natural Gas Producing Activities

	Year Ended December 31,
	2016		2015		2014
Acquisition costs:	(in thousands)
Proved properties	$	—	$	1,200	$	—
Unproved properties		—		1,170		391
Development costs		2,171		944		611
Total	$	2,171	$	3,314	$	1,002

Reserve Quantity Information

The following information represents estimates of the Company’s proved reserves as of December 31, 2016, which have been prepared and presented under SEC rules. These rules require SEC reporting companies to prepare their reserve estimates using specified reserve definitions and pricing based on a 12-month unweighted average of the first-day-of-the-month pricing. The pricing that was used for estimates of the Company’s reserves as of December 31, 2016 was based on an unweighted average 12-month average WTI posted price per Bbl for oil as set forth in the following table:

	Year Ended December 31,
	2016		2015		2014
Oil (per Bbl)	$	35.53	$	44.62		$	N/A

Subject to limited exceptions, proved undeveloped reserves may only be booked if they relate to wells scheduled to be drilled within five years of the date of booking. This requirement has limited, and may continue to limit, the Company’s potential to record additional proved undeveloped reserves as it pursues its drilling program. Moreover, the Company may be required to write down its proved undeveloped reserves if it does not drill on those reserves within the required five-year timeframe. The Company does not have any proved undeveloped reserves which have remained undeveloped for five years or more.

The Company’s proved oil reserves are located in the United States in the San Joaquin Valley of California. Proved reserves were estimated in accordance with the guidelines established by the SEC and the FASB.

Oil reserve quantity estimates are subject to numerous uncertainties inherent in the estimation of quantities of proved reserves and in the projection of future rates of production and the timing of development expenditures. The accuracy of such estimates is a function of the quality of available data and of engineering and geological interpretation and judgment. Results of subsequent drilling, testing and production may cause either upward or downward revision of previous estimates.

Further, the volumes considered to be commercially recoverable fluctuate with changes in prices and operating costs. The Company emphasizes that reserve estimates are inherently imprecise and that estimates of new discoveries are more imprecise than those of currently producing oil and natural gas properties. Accordingly, these estimates are expected to change as additional information becomes available in the future.

The following table provides a roll forward of the total proved reserves for the years ended December 31, 2016, 2015, and 2014, as well as proved developed and proved undeveloped reserves at the beginning and end of each respective year:   

	Year Ended December 31, 2016
	Crude Oil			Natural Gas
	(Bbls)			(Mcf)		Boe
	(in thousands)
Proved Developed and Undeveloped Reserves:
Beginning of the year		1,414			—		1,414
Extensions and discoveries		—			—		—
Revisions of previous estimates		(251	)		—		(251	)
Purchases of reserves in place					—
Divestures of reserves in place		—			—		—
Production		(3	)		—		(3	)
End of the year		1,160			—		1,160
Proved Developed Reserves:
Beginning of the year		358			—		358
End of the year		240			—		240
Proved Undeveloped Reserves:
Beginning of the year		1,056			—		1,056
End of the year		920			—		920

	Year Ended December 31, 2015
	Crude Oil			Natural Gas
	(Bbls)			(Mcf)		Boe
	(in thousands)
Proved Developed and Undeveloped Reserves:
Beginning of the year		—			—		—
Extensions and discoveries		—			—		—
Revisions of previous estimates		—			—		—
Purchases of reserves in place		1,418			—		1,418
Divestures of reserves in place		—			—		—
Production		(4	)		—		(4	)
End of the year		1,414			—		1,414
Proved Developed Reserves:
Beginning of the year		—			—		—
End of the year		358			—		358
Proved Undeveloped Reserves:
Beginning of the year		—			—		—
End of the year		1,056			—		1,056

	Year Ended December 31, 2014
	Crude Oil		Natural Gas
	(Bbls)		(Mcf)		Boe
	(in thousands)
Proved Developed and Undeveloped Reserves:
Beginning of the year		—		—		—
Extensions and discoveries		—		—		—
Revisions of previous estimates		—		—		—
Purchases of reserves in place		—		—		—
Divestures of reserves in place		—		—		—
Production		—		—		—
End of the year		—		—		—
Proved Developed Reserves:
Beginning of the year		—		—		—
End of the year		—		—		—
Proved Undeveloped Reserves:
Beginning of the year		—		—		—
End of the year		—		—		—

Standardized Measure of Discounted Future Net Cash Flows

The standardized measure of discounted future net cash flows does not purport to be, nor should it be interpreted to present, the fair value of the oil and natural gas reserves of the property. An estimate of fair value would take into account, among other things, the recovery of reserves not presently classified as proved, the value of unproved properties, and consideration of expected future economic and operating conditions.

The estimates of future cash flows and future production and development costs as of December 31, 2016, 2015, and 2014 are based on the unweighted arithmetic average first-day-of-the-month price for the preceding 12-month period. Estimated future production of proved reserves and estimated future production and development costs of proved reserves are based on current costs and economic conditions. All wellhead prices are held flat over the forecast period for all reserve categories. The estimated future net cash flows are then discounted at a rate of 10%.

The standardized measure of discounted future net cash flows relating to proved oil and natural gas reserves is as follows:

	December 31,
	2016			2015			2014
	(in thousands)
Future cash inflows	$	41,220		$	63,111		$	—
Future development costs		(8,785	)		(13,141	)		—
Future production costs		(25,567	)		(34,494	)		—
Future income tax expenses		(860	)		(2,974	)		—
Future net cash flows		6,008			12,502			—
10% discount to reflect timing of cash flows		(2,927	)		(5,395	)		—
Standardized measure of discounted future net cash flows	$	3,081		$	7,107		$	—

In the foregoing determination of future cash inflows, sales prices used for oil and natural gas for December 31, 2016, 2015, and 2014, were estimated using the average price during the 12-month period, determined as the unweighted arithmetic average of the first-day-of-the-month price for each month. Prices were adjusted by lease for quality, transportation fees and regional price differentials. Future costs of developing and producing the proved gas and oil reserves reported at the end of each year shown were based on costs determined at each such year-end, assuming the continuation of existing economic conditions. Future income tax expenses are computed by applying the appropriate year-end statutory income tax rates to the estimated future pre-tax net cash flows relating to proved oil and natural gas reserves, less the tax bases of the properties involved. The future income tax expenses give effect to income tax deductions, credits, NOL’s and allowances relating to the proved oil and gas reserves. All cash flow amounts, including income taxes, are discounted at 10%.

It is not intended that the FASB’s standardized measure of discounted future net cash flows represent the fair market value the Company’s proved reserves. The Company cautions that the disclosures shown are based on estimates of proved reserve quantities and future production schedules which are inherently imprecise and subject to revision, and the 10% discount rate is arbitrary. In addition, costs and prices as of the measurement date are used in the determinations, and no value may be assigned to probable or possible reserves.

Changes in the standardized measure of discounted future net cash flows relating to proved oil and natural gas reserves are as follows: 

	Year Ended December 31,
	2016			2015		2014
	(in thousands)
Standardized measure of discounted future net cash flows at the beginning of the year	$	7,107		$	—	$	—
Sales of oil and natural gas, net of production costs		(5	)		—		—
Purchase of minerals in place		—			7,107		—
Divestiture of minerals in place		—			—		—
Extensions and discoveries, net of future development costs		—			—		—
Previously estimated development costs incurred during the period		—			—		—
Net changes in prices and production costs		8,927			—		—
Changes in estimated future development costs		4,356			—		—
Revisions of previous quantity estimates		(21,886	)		—		—
Accretion of discount		2,468			—		—
Net change in income taxes		2,114			—		—
Net changes in timing of production and other		—			—		—
Standardized measure of discounted future net cash flows at the end of the year	$	3,081		$	7,107	$	—